Economy ended year on high note


A shopper carries a bag at the Dolphin Mall in Miami. A last-minute surge in spending helped many major U.S. retailers report better-than-expected sales in December. (Alan Diaz/AP)
January 3, 2013

The economy appears to have ended the year on a high note despite hand-wringing in Washington over the “fiscal cliff,” according to data released Thursday.

Businesses kept hiring, and consumers opened their wallets for cars and holiday gifts — seemingly shrugging off the shenanigans in the nation’s capital.

“The hysteria surrounding the fiscal cliff has passed,” said Jason Conibear, trading director at Cambridge Mercantile, a financial services firm. “The U.S. economy doesn’t appear to be in all that bad shape right now, but it does need to stay alert.”

The government’s labor report isn’t due until Friday morning. But on Thursday, a closely watched private estimate of employment found the nation added 215,000 jobs in December, a solid finish to the year.

The estimate, calculated by Moody’s Analytics and based on payroll data from Automatic Data Processing, a human resources firm, included a rebound in construction hiring and represented the largest monthly gain since February.

Retail and auto sales up in December

The ADP estimate is considered a bellwether for the government’s official employment report. A similarly strong showing in that data could help quell fears that the rancorous debates over federal tax increases and spending cuts would be detrimental to the economy.

“The job market held firm in December despite the intensifying fiscal cliff negotiations in Washington,” said Mark Zandi, chief economist of Moody’s Analytics. “Businesses even became somewhat more aggressive in their hiring at year end.”

Other data bolstered the view of a more resilient economy. Carmakers on Thursday reported the strongest annual sales since the recession began. General Motors sold nearly a quarter-million vehicles last month — the most all year — while Volkswagen recorded its best December since 1970.

Still, business leaders wondered how much better sales could have been without uncertainty over the fiscal cliff hanging over consumers’ heads. GM said the ensuing tax deal and the “overall health of the U.S. economy” bodes well for 2013.

“The budget compromise reached in Washington this week removes uncertainty and clears the way for full-year light-vehicle sales to rise to the 15 million to 15.5 million unit range in 2013,” said Kurt McNeil, vice president of U.S. sales operations.

Many of the nation’s largest retail chains also reported significant sales growth last month, although the results varied widely among companies and from week to week. According to the International Council of Shopping Centers, a trade group, overall sales at the nation’s largest chain stores, excluding drugstores, jumped 4.1 percent in December compared with a year ago.

Sales at Nordstrom stores open at least a year rose 8.2 percent, while Costco reported an 8 percent jump in sales at its U.S. locations.

Meanwhile, Macy’s said its December sales rose 4.1 percent, but the total increase for the holiday season was slightly disappointing.

“While the rate of growth was somewhat less than we had expected in the first two months of the fourth quarter, it came amid some significant headwinds from uncertain economic news and the lingering effects of Hurricane Sandy,” Macy’s chief executive Terry J. Lundgren said.

Business leaders and economists had warned that partisan bickering over how to address looming tax increases would freeze consumer spending because families would not be able to plan their household budgets. Companies would limit hiring in the face of potential across-the-board federal spending cuts.

Documents released Thursday showed even officials at the Federal Reserve considered such uncertainty a threat to the economy. According to the minutes of the December meeting of its policymaking committee, officials believed the brinksmanship “had likely reduced household and business confidence and led firms to defer hiring and investment spending.”

That belief, combined with the moderate pace of economic growth overall, helped set the stage for the Fed’s unprecedented promise to continue to bolster the economy at least until the unemployment rate hits 6.5 percent or inflation exceeds 2.5 percent.

Though lawmakers reached an agreement over household tax rates, they still must decide over the next few months whether to raise the nation’s debt ceiling and how to address scheduled spending cuts. But Thursday’s data suggested that the economy may prove surprisingly resilient.

Ylan Q. Mui is a financial reporter at The Washington Post covering the Federal Reserve and the economy.
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